📰Was India Wrong to Ban Jane Street? | Daily India Briefing

Was India wrong to ban Jane Street? India seeks economic reset with China. Singapore sovereign wealth fund signals bolder bets on India.

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Macro

• India’s wholesale prices fell 0.13 percent in June, marking the first drop in 19 months as food, fuel, and metal prices declined. Economists expect WPI to stay in deflation in July.

• India’s inflation hit a 6-year low in June at 2.1 percent, driven by falling food prices, but economists say it’s not enough for the RBI to cut rates yet. They expect the central bank to stay on hold for now, watching growth and global risks.

• India’s booming wealth management industry is fueling a hiring war, with private bankers demanding 40-50 percent pay hikes, big bonuses and stock options. Executives warn that this bull market frenzy could strain business models as new firms compete aggressively for talent and clients.

Equities

• India’s equity benchmarks slipped on Monday as losses in IT stocks, led by TCS’s weak results and tariff worries, offset gains elsewhere. The Nifty 50 fell 0.27 percent and Sensex dropped 0.3 percent.

• Ola Electric expects gross margins to improve to 35 percent-40 percent this fiscal year, up from 20.5 percent last year, helped by cost-efficient scooter models and new rare earth-free motors. Shares jumped over 14 percent after its Q1 loss narrowed and sales beat forecasts.

• HCLTech’s Q1 revenue beat estimates but profit fell nearly 10 percent. The IT giant raised its FY26 revenue growth forecast to 3 percent-5 percent but cut its margin outlook to 17 percent-18 percent, citing stable demand but continued tariff uncertainty.

• Tata Technologies posted a smaller-than-expected 1.9 percent drop in Q1 revenue to $144.7 million (₹12.4 billion), helped by strong deal wins like new projects with Volvo Cars and a European luxury automaker. The company expects a recovery in the next quarter and a stronger second half of FY26.

• Sun Pharma has launched its hair loss drug Leqselvi in the U.S. after settling a patent dispute with Incyte. Analysts say the drug could reach $400 million (₹34.4 billion) in sales by FY30, boosting Sun’s U.S. growth.

• India’s Travel Food Services shares opened 1 percent lower on debut, valuing the airport food and lounge operator at $1.67 billion (₹143.6 billion). The IPO was fully an offer for sale by the Kapur Family Trust, and market sentiment was dampened by U.S. trade deal uncertainty.

Alts

• Indian renewable firm SAEL will invest $954 million (₹82 billion) to build a 5 GW solar cell and module plant in Uttar Pradesh, boosting its total capacity to 8.5 GW. The move supports India’s goal to localize solar manufacturing and cut reliance on imports.

• India’s Inbrew Beverages and Tilaknagar Industries are both seeking about $500 million (₹43 billion) in private debt funding as they compete to buy Pernod Ricard’s Imperial Blue whiskey brand, sources say. Private credit funds have backed both bids, but only one borrower will proceed once a winner is chosen.

• India’s VIP Industries said Chairman Dilip Piramal and family will sell up to 32 percent stake to Multiples Consortium, triggering an open offer under SEBI rules. Control will shift to Multiples PE, with Piramal staying on as Chairman Emeritus.

• India’s Manipal Group is in talks with global banks to raise about $466 million (₹40.1 billion) in debt to fund its buyout of Sahyadri Hospitals. The Temasek-backed firm is exploring local currency bonds or loans with tenors of 3–5 years, sources said.

Policy

• India has ordered its airlines to inspect fuel switches on certain Boeing jets after a deadly Air India crash, even as Boeing and the FAA say the switches are safe. South Korea is preparing similar checks, adding to global scrutiny of the issue.

• Jane Street has deposited $567 million (₹48.8 billion) in escrow to meet SEBI’s condition for resuming India trading after being accused of market manipulation. SEBI is reviewing the firm’s request to lift its trading ban, but Jane Street won’t restart options trading until the dispute is resolved.

• India’s new quality control rules for copper cathodes risk causing supply shortages, says the Bombay Metal Exchange, citing costly compliance for foreign suppliers. Imports have dropped since the rules took effect, but the government rejects this claim.

• India has eased sulfur dioxide emission norms for coal power plants, exempting 78 percent of capacity to avoid higher power costs, the Association of Power Producers said. Plants near big cities must still comply by 2027, but many others are exempt to prevent costly upgrades.

• India’s pension funds want looser rules to invest more flexibly in company bonds. They’re asking regulators to lift caps on short-term bond holdings and allow investments with just one credit rating, aiming to widen options as pension assets surge.

1. Was India Right to Ban Jane Street?

In a move that has reignited debates over how far regulators should go to police financial innovation, India’s SEBI last week effectively banned Jane Street Capital, the giant U.S.-based proprietary trading firm, from participating in local markets. SEBI’s order, which alleges “manipulative and deceptive practices” in India’s booming index derivatives market, represents one of the strongest actions ever taken against a global high-frequency trading player in an emerging economy.

The fallout has been immediate: index option volumes on the NSE dropped nearly 40 percent in the days following the announcement, while global algorithmic traders scrambled to reassure their compliance desks that they were not next in line. Jane Street, for its part, has vowed to challenge the order, arguing that what India deems manipulation was, in fact, textbook arbitrage.

So was India right to pull the plug? The answer depends on whether you see Jane Street’s strategies as a vital source of liquidity or a threat to retail investors already battling a market notorious for its lopsided odds.

What happened? Jane Street, which quietly trades billions in global securities every day, has built its reputation on exploiting micro-inefficiencies using some of the fastest algorithms in the world. In India, regulators allege the firm went a step too far: according to SEBI’s 46-page show-cause notice, Jane Street used large cash equity positions to nudge the Bank Nifty index upward, then simultaneously bet against it using index options, pocketing the spread when the prices snapped back.

At the heart of SEBI’s case is a set of trades that the regulator says earned Jane Street an estimated $4.3 billion (₹369.1 billion) in “unfair gains” over an 18-month window ending March 2025. SEBI argues that by leveraging co-located servers, dark fiber lines, and cross-border feeds, Jane Street was able to stay milliseconds ahead of local brokers, triggering cascading orders that smaller traders had no realistic chance of front-running or hedging against.

Why does this matter? India’s derivative markets have grown at breakneck speed; the country now ranks as the world’s largest in terms of equity options contracts traded. Yet, that depth belies a striking statistic: SEBI’s own data shows that over 90 percent of individual investors in these markets lose money.

In this context, the case against Jane Street becomes both regulatory and political. SEBI officials argue that sophisticated HFT strategies can erode market integrity by distorting prices in ways retail participants neither see nor understand. The 2015 co-location scandal at the NSE, when select brokers exploited privileged server access to frontrun orders, still lingers as an institutional memory.

Critics of unfettered HFT point to the sheer scale of quote stuffing, with Jane Street allegedly posting and cancelling tens of thousands of orders in microseconds, as evidence that the firm’s strategies do not deepen liquidity but rather create ephemeral noise that punishes slower participants.

What the defenders say. Jane Street has pushed back forcefully. In a rare public statement, the firm called SEBI’s allegations “deeply flawed,” arguing that its trades amounted to classic index arbitrage, buying cash equities when they drift above fair value and selling index futures or options to lock in tiny mispricings.

Supporters of this view, including prominent voices like XTX Markets’ Alex Gerko, have noted that India’s market structure, dominated by zero-day options and shallow institutional flows, naturally creates short-lived arbitrage windows that sophisticated players are well-positioned to close. In their eyes, punishing arbitrage is tantamount to punishing efficiency.

Writing in Money Stuff, Bloomberg’s Matt Levine offered a characteristically sardonic take: “Sometimes a trade is so profitable that you start to wonder: Is the market broken, or am I too clever?” He points out that what regulators describe as “pump and dump” could just as easily be the mundane process of keeping index prices in line with the underlying.

Yet even Levine concedes the bigger question: how much asymmetry is fair? Jane Street’s average order-to-trade ratio, which SEBI claims exceeded 3,500:1 on some days, dwarfs market norms. While that ratio alone doesn’t prove intent to manipulate, it does highlight the speed mismatch between global HFT desks and India’s domestic brokers, many of whom lack the infrastructure or algorithms to compete on the same millisecond battlefield.

What does this mean for Indian markets? In the short term, the ban has introduced an unusual paradox: a reduction in liquidity that could slightly widen bid-ask spreads for options traders, yet potentially make the market feel fairer for the slower-moving retail crowd. India’s exchanges, reliant on the volumes and fees generated by firms like Jane Street, may feel the pinch, but SEBI appears willing to absorb that trade-off in favor of restoring market trust.

Longer term, the question is whether India can find a middle ground. On one side lies the undeniable benefit of algorithmic liquidity: tighter spreads, deeper books, and better price discovery. On the other hand is the risk that a handful of foreign prop shops, armed with ever-faster code and privileged access, systematically siphon profits from millions of retail traders.

India’s policymakers are sending a clear signal that the rules of the game will now favor transparency over pure speed. Proposed amendments would require all algo traders to lodge source code with the regulator, anathema to global quant houses, and to run kill switches that halt strategies if order ratios spike above specified thresholds.

Will other global firms follow? Already, other large players, including Citadel Securities and Millennium, are said to be reviewing their India exposure. Some may opt to shift to fully onshore joint ventures to comply with stricter local oversight. Others could pivot volumes to Singapore or Dubai, where the regulatory environment is perceived to be friendlier to speed-driven strategies.

The ultimate test will be whether India’s domestic brokers can fill the void. Several homegrown firms, buoyed by government support for co-location upgrades and AI-powered surveillance, are investing in their own mid-frequency strategies. If they succeed, the country could gradually replace foreign quant liquidity with domestic tech that plays by clearer rules.

So was India right to ban Jane Street? From SEBI’s vantage point, the ban reinforces the principle that no player, however sophisticated, is above the rules, especially when the average investor bears the brunt of games they can’t hope to understand.

Yet, if you believe markets should reward speed, innovation, and the relentless hunt for micro-inefficiencies, Jane Street’s defenders would argue this is a dangerous precedent. As Matt Levine wryly put it, “There is a fine line between arbitrage and trickery, and sometimes the line depends on who’s slower.”

Either way, the ban marks a turning point for India’s capital markets. For the first time in a decade, the debate is not just about how much foreign money to invite in, but how much speed, secrecy, and algorithmic advantage the system should tolerate.

As India’s derivatives market continues to boom, the rest of the world will be watching closely. Because in the high-stakes race between code and regulation, this won’t be the last time someone gets shown the door.

2. India Seeks Economic Reset With China.

India is signaling a pragmatic shift in its economic ties with China, as External Affairs Minister Subrahmanyam Jaishankar’s first visit to Beijing since the 2020 border clash highlighted a clear message: removing trade restrictions and resolving border tensions are vital to rebuilding trust. In a year when India is doubling down on supply chain resilience and critical minerals diversification, Jaishankar’s call to end “restrictive trade measures” is a direct response to China’s tighter export controls on rare earths, a move that has rattled global automakers and India’s own clean energy ambitions.

The talks come at a pivotal time for India’s macro strategy. As the world’s second-largest rare earths processor, China holds sway over inputs critical to India’s EV, electronics, and renewable sectors. Ensuring stable access will be key to India’s push to become a credible manufacturing alternative and to meet its ambitious energy transition targets.

The visit also reflects India’s balancing act: deepening South-South ties through forums like BRICS while pragmatically managing competition with its biggest regional rival. With bilateral trade already surpassing $100 billion (₹8.6 trillion) but skewed heavily in China’s favor, India’s push for fairer terms, better market access, and fewer roadblocks could help narrow a persistent deficit that has long weighed on its external accounts.

Whether this momentum can translate into concrete supply chain cooperation will shape India’s efforts to de-risk critical sectors and maintain macro stability as it pursues higher growth and strategic autonomy in a shifting geopolitical order.

3. Temasek Signals Bolder, Focused India Bets as Market Matures.

Singapore’s sovereign wealth fund, Temasek Holdings, is sharpening its India playbook as it shifts to making larger, more selective bets on high-conviction sectors in Asia’s fastest-growing major economy. The fund’s India portfolio, already worth $50 billion (₹4.3 trillion), has surged 35 percent this year on the back of capital appreciation and fresh investments, highlighting the scale of global capital chasing India’s resilient growth story.

Ravi Lambah, head of Temasek’s India operations, said the maturing market now allows the fund to “concentrate” bigger capital into fewer businesses, with consumption, financial services, healthcare, sustainability, and transportation topping its watchlist. This disciplined pivot aligns with India’s broader macro trend: the depth of domestic capital markets, a steady regulatory environment, and record retail inflows have boosted exit certainty for long-term investors, a stark shift from a decade ago when liquidity constraints often hampered large PE and sovereign deals.

Temasek’s willingness to partner with India’s family-run businesses also signals a structural vote of confidence in the country’s unique corporate landscape, where generational firms dominate key sectors. Early signs of this strategy are visible in recent moves like its stake in Haldiram Snacks and hospital chain acquisitions via Manipal Hospitals.

As India’s $5 trillion (₹430 trillion) stock market absorbs record mutual fund inflows, the growing ease of large-scale exits gives Temasek, and other sovereign investors, greater comfort to scale up bets in areas tied to rising middle-class consumption and healthcare demand. This next phase of selective, high-ticket investment underscores India’s evolution from an emerging opportunity to a core portfolio pillar for global capital.

See you tomorrow.

Written by Eshaan Chanda & Yash Tibrewal. Edited by Shreyas Sinha.

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